Rebalance Time? Some Thoughts on Where to Invest Now.

Each day I look at how the stock market and my portfolio is doing in my Google Finance Spreadsheet. I know it’s not a healthy behavior, but I can’t resist. For a few minutes the amount of green or red does change my mood. Ugh!

However, sometimes I notice trends in the stocks and index funds that I follow. That is extremely helpful a few times a year.

One of the recent times I noticed a trend was a week or two ago. I noticed that my SodaStream stock had gone through the roof. I did a quick look at the news and it turns out that Pepsi is buying the company at a great premium. Yay!

I’m not interested in owning Pepsi stock. Fortunately, since my SodaStream investment was in a retirement account, I could sell it without tax ramifications. That’s just what I did.

If it had happened a month or two ago, I wouldn’t know what to do with the money. I would have left it as cash and wait for the next buying opportunity. It’s not a couple of months ago, and I currently had a few buying opportunity ideas already on my mind.

Before I get into those ideas, I want to address the obvious. Odds are, you didn’t invest in SodaStream. However, you may still also have some cash to invest.

Perhaps more likely, you have investments in some US stock indexes such as the S&P 500 or the Wilshire 5000. I’ve noticed that the stocks keep hitting new highs day after day. That’s great… Go USA! However, I’ve always been worried that my money is too reliant on the United States. We already have a very large real estate investment here. To make it worse, the United States is central to our main sources of income.

The single biggest point of failure in our diversification is the United States. I like the idea of having money spread all over the world. The best way I know how to do that is to buy more foreign stocks. If you have a similar belief, you might find that you need to rebalance your positions as the foreign stocks are now likely significantly less than the US stocks.

With that as a stepping stone, let’s get started on:

Some Investment Ideas for Right Now

Remember the investing mantra of “Buy low, sell high?” If the United States indexes (or in my case, some event like SodaStream) is high, I look for things that I can buy low. I prefer index funds as they are less likely to have some kind of Enron-like scandal that few people saw coming. (Yet, I still invest in some individual companies, like SodaStream. I never promised that I made sense.) I’ve got three ideas that fit the bill. (I generally prefer ETFs and Vanguard funds when possible due to low expense ratios. Full disclosure: I own all three of these index funds.)

Emerging Markets (Ticker: VWO) – You may have noticed that emerging markets have been on fire lately… unfortunately it’s been a dumpster fire. It feels like they are down 5-6% in just the last week. It’s trading at just around its 52-week low and off 20% from its 52-week high. There’s a lot going around the world that explains it, which I won’t get into here. Things may get worse before they get better. However, over the long haul, I believe that these countries have a greater opportunity to grow as the world becomes more connected. I poured all the money from the SodaStream sale into this index.

Frontier Markets (Ticker: FM) – You almost never see anything written about frontier funds, except for my article on them of course. The countries in frontier funds are very small, so small that they don’t even qualify to be emerging. Here are some example countries: Kuwait, Vietnam, Romania, Nigeria, and Qatar. One of the top 10 holdings seems to be the Bank of Transilvania. As we all know if you default on a loan to the Bank of Transilvania, they send Dracula after you.

Some people will probably call frontier markets gambling, but again, it’s fairly diversified. I wouldn’t make it a big part of a portfolio, but it is worth considering. Like emerging markets, FM is trading near its 52-week low, but off nearly 25% from it’s 52-week high.

Solar Power (Ticker: TAN) – Who loves cancer-causing tanning beds? Not me. Fortunately, this TAN is about investing in solar power companies. I don’t know if too many people doubt that solar is the future. I’m starting to see it everywhere… even on my own home’s roof. It’s trading close to its 52-week low, and off more than 20% from its 52-week high.

Finally, I had one final investment idea that I hesitated to share. I really haven’t looked into the company in great detail, so you’d definitely need to do your own research. It looks like SnapChat (SNAP) is below $10 for the first time in its existence. I do know that they’ve had some horrible earnings in the past, so maybe it is well deserved. However, I know all the kids love the company, and maybe a 12.5 billion valuation is low. I’m really on the fence about this one though, so take caution. I could see Snapchat going away before something like solar power or Transilvania. Full disclosure: I got a few free shares from Robinhood’s free stock promotion.

At the end of day, it’s up to you to manage your money as you see fit. I’m hoping that over the 20-30 years that I plan to keep this money invested, there’s going to be better than average growth than if I just stuck with the United States. If not, I do sleep a little better knowing that my investments are diversified (and backed by Dracula).

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Comments

I’m sitting on some cash/bond too. We already have plenty invested in international and emerging markets. I don’t want to overweight them too much.
I’m okay with having a hefty cash/bond fund right now, though. I don’t mind giving up say 5-10% over the next couple of years with this part of my portfolio. Can the US indexes keep going up?

Sitting on cash/bonds was something I heavily considered as well. With the drop in emerging markets, I went with logic of “I’d rather be invested than not be invested.” If they were really high (as they were earlier this year), I would definitely just kept more in cash and bonds.

We’re fully invested with our portfolios at the moment. Since we’re in this for the long haul, we’ll just ride out any bumps along the way. We also have a wealth manager managing the portfolios currently. It’s a bit expensive, but we weren’t actively taking advantage of rebalancing, tax harvesting, etc. So, we may hang on to them for a while.

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